Econometric Estimation Of The Validity Of Purchasing Power Parity For BRICS-T Countries
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https://doi.org/10.5281/zenodo.14507720Keywords:
Purchasing Power Parity, Unit Root, Real Exchange Rates, NonlinearityAbstract
The purchasing power parity (PPP) hypothesis is an important issue in macroeconomics that has been the subject of many applied studies, and unit root analyses, used to determine stationarity, have proven to be helpful in this regard. If a unit root is present, the shocks are considered permanent, and if absent, the shocks are considered to have a temporary effect. A stationary real exchange rate implies that PPP holds, whereas the opposite does not. This study investigates the validity of PPP for which it draws upon 2017–2024 data for BRICS-T countries, namely Brazil, Russia, India, China, South Africa and Türkiye, and subjects them to both linear and nonlinear unit root tests. The subsequent discussion of the results reveals that PPP does not hold in these countries (no mean reversion), meaning that shocks have a permanent effect.
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